On 5 December 2017, Markus Jooste (right) suddenly resigned as Steinhoff chief executive amid an investigation into accounting irregularities at the firm. (Photo by RODGER BOSCH / AFP)
Steinhoff cannot pick and choose what it discloses in the wake of its disastrous financial scandal. This is according to Steven Budlender SC, who on Monday argued that the scandal-hit retail company had not established why the contents of a 3 000-page report from a PwC investigation should be withheld.
Budlender — who represents media house Tiso Blackstar (now Arena Holdings) and the amaBhungane Centre for Investigative Journalism in the case — also argued that, even if a judge found that legal privilege was established, the report’s release was in the public’s interest.
‘The most breathtaking financial disaster’
The case was argued virtually at the Western Cape high court, with Judge Lister Nuku presiding. The matter was heard a week after Steinhoff’s announcement that the same court had approved a proposed settlement with shareholders to the value of over R24.7-billion.
As part of the settlement, claimants will have to drop all current and future legal actions against the retailer.
The Steinhoff scandal, Budlender said on Monday, constitutes “the most breathtaking financial disaster” in the history of the Johannesburg Stock Exchange.
On 5 December 2017, Markus Jooste suddenly resigned as Steinhoff chief executive amid an investigation into accounting irregularities at the firm. Steinhoff’s share price plunged by more than 95%, erasing tens of billions of rands in shareholder value.
On the same day, Steinhoff told shareholders that its board had approached PwC to perform an independent investigation into the matter. In that announcement the firm said it would “update the market as the aforesaid investigation proceeds”.
The report was never published. Steinhoff did, however, publish an 11-page overview of the forensic investigation, which revealed that a range of “fictitious and/or irregular” transactions inflated the profits and assets of the group by over €6.5-billion, or over R100-billion, between 2009 and 2017.
In the overview, Steinhoff said the PwC report was confidential “and subject to legal privilege and other restrictions”.
When Tiso and amaBhungane applied under the Promotion of Access to Information Act for the full report, Steinhoff said it was commissioned by Werksmans attorneys on the board’s instruction “on the basis, directly, of providing legal advice in contemplation of litigation”.
The privilege defence
But on Monday, Budlender noted that the grounds for legal privilege were not set out when Steinhoff initially promised to update shareholders on the PwC’s investigation.
“It seems to us remarkable, with respect, that one is faced with a situation in which an investigation is publicly announced … The investigation is announced, let’s be frank, in an effort to show that Steinhoff is doing the right thing in the face of the massive losses and issues that are in the public domain,” he said.
“And your lordship, there is an increasing tendency by government agencies and companies that face some scandal [that] they announce, with much fanfare, that there will be an independent investigation … At that point there was no reference to privilege. There is no suggestion that this report is going to be withheld from the public in its entirety.”
Budlender argued further that Steinhoff was hiding behind the privilege defence to avoid disclosing the report. The court, he added, must be careful not to “create a gateway through which public and private bodies can drive a truck to avoid their access to information obligations”.
Steinhoff, Budlender contended, waived its legal privilege when it used the report to make a public disclosure through the 11-page overview. “Because the public is then entitled to see what the report says … You can’t cherry pick when you are making disclosures to the public, because, if you do so, you run the risk of waiver.”
The report’s release, Budlender added, is a matter of public interest that outweighs any legal privilege aimed at protecting Steinhoff’s interests.
“Here we are not dealing with public advice. We’re dealing with an investigation by PwC, which is, in many cases, heavily focused on accounting, on facts, on what transpired. It’s not legal advice. And so when you’re weighing up the scales of the harm of disclosure and the need for public interest disclosure, it’s completely different.”
No wishing away the legal consequences
But Steinhoff’s counsel, André Smalberger SC, contended that at the same time PwC was appointed, the retailer sought legal advice. “Right from the get-go Werksmans was involved in that process … The attorneys were involved from very early on in the process,” he said.
The PwC report, Smalberger said, cannot be viewed in isolation from any litigation arising from the allegations being investigated. Litigation, he said, “was plainly contemplated at the time of the appointment of PwC”.
“You have to look at the whole thing together. The one can’t live without the other, because the consequence of the investigation is that there may be potential claims that arise and those claims will then be pursued,” he added.
“That is why we submit, my lord, that it is important to bear in mind that you can’t simply look at this as being a report commissioned for the purpose of the accounting irregularities … One cannot wish away what happened at the time the report was commissioned.”
Smalberger refuted Budlender’s claim that the partial disclosure of the report, through the 11-page overview, would result in Steinhoff waiving its legal privilege. The overview, he said, did not disclose anything that would breach that privilege. “There is no disclosure of anything which could be vaguely considered to impact on a legal claim. That is deliberately done.”
The entity that has suffered the most harm, Smalberger noted, is Steinhoff — and the firm’s interests are not eclipsed by public interest. “Steinhoff is seeking to protect its interests. It is seeking to protect the interests of its shareholders. One can’t say that, because that isn’t the public in the broad sense, that the public interests somehow outweigh the interests of Steinhoff.”
Judgment was reserved.